BJ’s Wholesale Club Holdings, Inc. — Form 10-Q Summary
Reporting period: The filing covers the 13 weeks ended May 1, 2021, BJ’s fiscal first quarter of 2021, compared with the 13 weeks ended May 2, 2020. Although the request metadata says “2020 Q1,” the filing itself reports fiscal Q1 2021. BJ’s operated 221 clubs and 151 gas stations in 17 states.
Financial results
| Metric | Q1 FY2021 | Q1 FY2020 |
|---|---|---|
| Net sales | $3.782 billion | $3.718 billion |
| Membership fee income | $86.4 million | $79.6 million |
| Total revenues | $3.868 billion | $3.798 billion |
| Operating income | $126.3 million | $143.8 million |
| Net income | $81.6 million | $95.7 million |
| Diluted EPS | $0.59 | $0.69 |
| Operating cash flow | $249.0 million | $469.9 million |
| Free cash flow | $190.9 million | $434.7 million |
- Net sales increased 1.7%; total revenues rose 1.9%, supported by 8.6% growth in membership fee income. Comparable club sales increased 0.3%, but merchandise comparable club sales fell 5.0%. Gasoline sales increased 63% year over year and contributed 5.3 percentage points to comparable sales.
- Operating margin, calculated as operating income divided by net sales, was approximately 3.3%, versus 3.9% a year earlier. Net margin was approximately 2.2%, versus 2.6%. Cost of sales increased to 83.1% of net sales from 82.3%; merchandise margin improved 80 basis points, partly offset by the higher share of lower-margin gasoline sales.
- Adjusted EBITDA was $202.4 million, or 5.4% of net sales, versus $193.9 million, or 5.2%. This is a non-GAAP measure.
- Cash and cash equivalents were $63.0 million at May 1, 2021. The company reported $650.4 million of unused ABL revolving capacity. Current assets were $1.436 billion and current liabilities were $2.036 billion.
- Total debt was $961.9 million, down from $1.112 billion at January 30, 2021 and $1.362 billion at May 2, 2020. During the quarter, BJ’s repaid $100 million on its First Lien Term Loan and $50 million on the ABL Facility. The filing reports $210 million of current debt and $747.3 million of long-term debt.
- Investing cash outflow was $58.1 million, including $74.7 million of net property and equipment additions and $16.6 million of sale-leaseback proceeds. Financing cash outflow was $171.5 million, including debt repayments and $24.0 million for treasury stock purchases.
Material changes and management commentary
- Results were affected by comparison with the pandemic-driven buying surge in Q1 FY2020: grocery comparable sales declined approximately 10% as demand for paper, cleaning, packaged goods, and beverages normalized. General merchandise and services sales grew approximately 32%, led by seasonal, apparel, furniture, and electronics categories.
- SG&A increased 1.6% to $599.9 million. It included $17.5 million of stock-based compensation related to modifying awards following former CEO Lee Delaney’s death, and $2.3 million of severance associated with field-operation realignment. Total stock-based compensation was $27.3 million, compared with $5.5 million a year earlier.
- Interest expense declined to $19.3 million from $21.8 million as debt and rates fell, partly offset by $4.7 million of cash-flow-hedge losses reclassified to interest expense and a $0.7 million debt-extinguishment charge.
- Operating cash flow and free cash flow were substantially lower year over year. Management attributed the operating cash-flow decline primarily to the prior-year timing lag in payments for merchandise associated with the initial pandemic sales surge.
- Following Mr. Delaney’s death, Bob Eddy became President and CEO, and Laura Felice became CFO. Management said infrastructure and digital investments are intended to support the operating model, member experience, and growth.
Outlook, risks, and contingencies
- No specific revenue, earnings, or comparable-sales guidance is provided. Management said available liquidity should be adequate to fund operations, debt obligations, investment, and expansion for the foreseeable future.
- Management cautioned that COVID-19’s duration and effects remain uncertain, including possible changes in purchasing behavior, product mix, sourcing, and demand. The filing also identifies economic conditions, competition, member loyalty, vendors and supply availability, gasoline-price volatility, cybersecurity, climate and natural disasters, and substantial indebtedness as risks.
- Substantially all borrowings carry variable interest rates; interest-rate changes may affect interest expense and operating cash flow. Interest-rate swaps had a $20.2 million liability at quarter-end.
- The company reported ordinary-course legal proceedings and did not expect their resolution to cause a material loss. It reported no material change in risk factors, no defaults on senior securities, and no off-balance-sheet arrangements.
- The company projected a 26.7% fiscal 2021 effective tax rate, excluding discrete items. It noted the business is seasonal, with sales and operating income typically highest in the fourth quarter.
Important facts for investors to verify
- Whether merchandise demand and comparable sales continue to normalize after the unusual Q1 FY2020 pandemic comparison, and how gasoline sales affect reported growth and margins.
- Whether membership growth, renewals, and higher-tier membership penetration sustain fee-income growth; the filing cites more than six million members and an 88% renewal rate at FY2020 year-end.
- How much of the quarter’s earnings and adjusted EBITDA reflects recurring operations versus award modifications, severance, hedge losses, and other adjustments.
- Debt repayment pace, variable-rate exposure, ABL capacity and borrowing-base availability, and the effect of future interest-rate changes.
- Capital spending, new club and gas-station openings, and the use of remaining share-repurchase authorization; $136.4 million remained under the program at May 1, 2021.